Turkish koranic school, Berlin
Nechirvan Barzani, prime minister of the Iraqi Kurdish government, did not try to hide his excitement. "I am leaving in a few hours to fly to Seoul and sign a big contract with the Koreans", he said after a ceremony at the Kurdish parliament inErbil.
Shortly afterwards, it was announced that a memorandum of understanding had indeed been signed with Korean president-elect Lee Myung-Bak to include the exploration and the development of four oil fields in Kurdistan. The deal requires Korean construction companies to develop the local infrastructure with the construction of a $ 2bn, 450 km highway and $10bn worth of "social infrastructure", including hospitals, schools, water supply networks and power plants.
So far, the Kurds have signed about 20 Production Sharing Agreements (PSA) with foreign independent oil companies. Despite stern warnings by Bagdad, Genel Enerji and DNO were among the first to sign with the Kurdish authorities, followed by Heritage Oil, Sterling Energy, Woodside Petroleum, Petoil, Perenco, OMV, Dana Gas, Western Oil Sands, Gulf Keystone and Hunt.
The development of the Taq Taq oil field, 60 km northeast from Kirkuk, sums up the history of oil in Kurdistan. The first exploration well was drilled in Taq Taq back in 1960, after general Qassem's revolution overthrew the Iraqi monarchy, and was left uncomplete. Drilling resumed at Well 1 in 1978, under the Baath Party, when INOC, the Iraqi National Oil Company, started drilling two more wells, Wells 2 and 3. In 1981, due to technical problems, the Iran-Iraq war and the presence of Kurdish peshmergas (Kurdish freedom fighters), work stopped in the remote fields of Kurdistan and was concentrated in the easier to protect area of Kirkuk.
For 15 years, the oil fields of Kurdistan were left unexplored, while Kurds were expelled from the city and the governorate of Kirkuk within the framework of a systematic campaign of Arabisation. In 2003, when Saddam Hussein was removed from power, only 40 Kurds were working in the oil company in Kirkuk.
Work resumed after the Kurds set up their own administration in 1992. Faced with an embargo on fuel enforced by Bagdad, the Kurds started the exploitation of two wells in Taq Taq. Starting in 1994, Well 2 produced heavy crude used by the Souleimania cement factory. And Well 1 was finally opened by Kosrat Rasul, head of the PUK government, on 17 May 1996. It produces 3,000 barrels a day (b/d), sent to a small kit refinery built in Suleimania from the spare parts of a sugar factory.
It is not clear when Taq Taq entered the industrial age. Did Jalal Talabani, in his capacity of secretary general of PUK, negotiate a deal with Genel Enerji, a Turkish company, on 20 January 2004, a few weeks after the capture of Saddam Hussein, as it is officially written. Or was it signed in July 2002, several months before the American operation in Iraq, as some sources claim, when the Kurdish region had still no official status? Either way, all sources agree that it was a political deal -- a particularly generous one -- with a clear aim: to mollify the Turks and bring them to accept the idea that the Kurds could produce oil and export it through Turkey.
Genel Enerji is a front for a Turkish conglomerate, Cukurova Holding -- with no oil experience ; in July 2005 it linked up with Addax international, a Swiss-Canadian oil company, and formed TTOPCO (Taq Taq Operating Company). Six wells have since been successfully drilled, each with a production capacity of 16,000 37,000 b/d. More wells are expected to be drilled in the second half of 2008 when a new modern rig is brought in. Production should then reach 100.000 b/d which would enable the Kurds to export their oil. "We joined forces with a Turkish company", says engineer Hoshyar Nuri Abbas, the Taq Taq field manager, "to find the key".
At the other end of Kurdistan, near Zakho, in Badinan, a region traditionally controlled by the KDP, the second main Kurdish main political party, DNO, a Norwegian oil company, is also about to produce oil. After signing a contract with the Kurdish government of Erbil in 2004, it struck oil with its first exploration well, Tawke 1, which has a production capacity of 5,000 b/d. DNO drilled five more positive wells, and is planning to produce 50,000 b/d as soon as it can export its oil. A pipe-line with a capacity of 50,000 b/d has been built from Tawke to a point close to the Kirkuk-Ceyhan main pipe-line. And according to some unconfirmed reports, a convoy of tanker trucks is already at work exporting oil to Turkey (each tanker carrying 200 barrels, 25 trucks carry 5,000 barrels with a single rotation per day).
Other companies are proceeding with seismic surveys and preparing to drill exploration wells, but, unlike Genel Enerji and DNO, they are moving slowly: "We will do the seismic survey and drill a few wells", says an oil executive working for one of these medium size independents who wants to remain anonymous. "Our contract says that each phase will last two to three years. We will proceed slowly. Hopefully in five or six years, the problem between the Kurds and Bagdad will be solved. Everybody needs this oil, Bagdad included".
An elusive oil law
The conflict between Bagdad and the Kurds has stalled the adoption of an oil law by the Iraqi parliament, where the Kurds control a block of 55 MPs. Fundamentally, the Kurds want to have the right to sign contracts for the exploration and exploitation of the new oil fields (leaving the old ones to the central government) while Bagdad wants to control all developments and supervise all new contracts.
"It is obvious from past history, that Bagdad will not develop oil in Kurdistan", says a European oil expert, adding "If the Kurds want to develop the oil industry in their region, they have to take the initiative". "If the Kurds wait for Bagdad to develop the oil fields of Kurdistan, they could wait until my grandchildren run the business", adds another representative of an independent oil company.
The Kurds have a more immediate interest to sign the contracts with the oil companies: "There is a lot of "bonus", says an expert with an intimate knowledge of the industry. "Funds are allocated by the oil company for the training of employees and for the preservation of the environment It brings jobs for local people". There are also other "pluses", on which he does not elaborate. The Kurds are quick to learn, as shown by the recent contract with the Koreans, which will bring billions of dollars of infrastructure projects to Kurdistan.
These conflicting views explain why Iraq is still without an oil law which has been discussed by experts and politicians for two years.. "We started discussing the project of an oil law in May 2006", recalls Ashti Hawrami, the oil minister of the Kurdistan Regional Government and the "bête noire" of Hussein al Sharistani,the Iraqi oil minister. A first draft was written which was, claims Ashati Hawrami, "consistent with the previous regime We even suspect it was written before Saddam Hussein's fall". It was reviewed by an 11-member federal oil and gas committee created by Prime Minister Nouri al Maliki, and on 15 January 2007, it was announced that a final text was agreed and sent to the Iraqi parliament. "I got a copy of the text. Although we were said to be " on board " ,it was totally unacceptable ", says Ashti Hawrami. It took six weeks to renegotiate a new draft, which was finalised on 26 February 2007 and approved by the government.. But the Kurds did not agree on everything. They insisted that the law should precise the role of the Iraqi National Oil Company (INOC) and identify the oil fields falling under its supervision. The Kurds also wanted a clearer revenue sharing law
The INOC law was written by a committee made up of Oil Ministry officials who con sider that foreign oil companies come to Iraq "to steal Iraqi oil" and do not want to hear of production Sharing Agreements (PSA). They decided that most of the oil fields -- in fact, 93 % of the reserves -- would be allocated to INOC. "If 93% is allocated to INOC, what do you give me", says Ashti Hawrami, "then there is no need for an oil and gas law This is totally unacceptable".
Ashti Hawrami spent two weeks discussing with Prime Minister Nouri al Maliki the issue of sharing revenues. At the end of June 2007 it was agreed that all revenues, including the revenues of the Kurdish region, would go to a single account, and that the central government would take its share for so called " sovereign expenses " , including expenses for foreign affairs and defence, approved each year with the budget by parliament. The Kurdish region would get its share -- 17% -- the remainder being administered by the central authorities, and going to the other regions of Iraq if a federal republic is set up and if other regions are created.
A new twist
Then came a new twist. The draft of the oil law was sent to a "shura council" made up of experts of the Ministry of Justice which decided that the law should be consistent with an eventually amended constitution and which altered the draft. Several pages were taken out from the agreed draft. "Here we stand", says Ashti Hawrami, "the Kurdistan regions rights have been deleted, and the INOC law is still under discussion".
"We accepted a compromise", adds the Kurdistan oil minister, "with the creation of an oil and gas council entitled to review our contracts. But we want a law that respects the Iraqi constitution. Article 112 is very clear. We are partners with the federal authorities, we are not second class citizens. Decisions are not to be taken in Bagdad. If an oil field lies in Kurdistan -- if it is a new one -- . we sign the contract. If it is an old one, which may be allocated to INOC, we are partners in management".
Two years after the oil law was first discussed, there is still no agreement on a text to be approved by the Iraqi parliament. In February 2008, a new crisis erupted between Bagdad and the Kurdish regional government. First, Bagdad wanted to allocate only 13% of the budget to the Kurds. Then it agreed to allocate 17% as previously agreed, but it questioned the number of peshmergas (Kurdish fighters) whose salaries and pensions should be financed by the central government -- the Kurds quote a figure of 90,000 peshmergas, while Bagdad said their number should be no more than 30,000
It looks as though both sides have given up the idea of agreeing an oil law, and the Kurdistan Regional Government is signing new contracts with independent small oil compagnies, while Bagdad is starting discussions with some majors for the development of its southern fields.
"We want to produce up to 1m b/d in a maximum of five years", states Ashti Hawrami. "We also want to be self sufficient in terms of refinery". Does it mean that the Kurdistan Region will soon be like a Gulf Emirate ? "With 1mb/d for a population of 4 millions Kurds, Kurdistan will more likely be another Dubai, and not another Abu Dhabi", says an oil executive about to produce oil in Kurdistan
(The Middle East magazine, May 2008)
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